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Emirates, known for luxurious planes with showers and bars, is considering adding cheaper long-distance flights in order to better fend off aggressive competition from low-cost carriers.
“More and more international network carriers will be starting to move into the long-haul, low-cost market,” Emirates president Tim Clark said at a press briefing in Berlin. “That will be the shape of things to come.”
Traditional airlines such as Deutsche Lufthansa AG and Air France-KLM are trying to expand their low-cost offerings as discount carriers including Norwegian Air Shuttle ASA and Singapore’s Scoot push into the sector’s most lucrative segment. The rivalry is burdening network carriers such as Emirates at a time when terrorism, the economic slowdown in the Middle East and the U.K.’s planned exit from the European Union are already depressing travel and reducing fares.
Emirates, which has exploited its Persian Gulf location to turn its Dubai hub into an inter-continental crossroads, has had a particularly rough year. Low energy prices have sapped demand for lucrative premium bookings from executives in the oil and gas industry, while terrorist attacks in Europe have scared off travelers from Asia.
Profit at the airline’s parent company Emirates Group plunged 64 percent in the first half to 1.3 billion dirhams, the company said last week. Revenue growth was damped by a strong U.S. dollar and currency restrictions in some African countries.
Airlines are operating in a world “fraught with volatility,” Clark said. The difficult conditions are especially troublesome for Emirates, the world’s largest international carrier, because it has ordered $112 billion of aircraft that it will somehow have to fill at a profit.
Emirates’ fleet comprises about 250 planes, including Airbus A380 superjumbos which seat as many as 600 passengers. It’s set to get another 50 A380s and has one Boeing Co. 777-300ER coming each month for the next two years.
The carrier will stick to its orders, in part because the A380’s size gives them a lower per-seat operating cost compared to many of the aircraft operated by the competition, allowing Emirates to break even at a lower ticket price. New York-based JetBlue Airways Corp., for example, is planning a European expansion as early as 2019 that would rely on much smaller narrow-body planes.
The outlook for fares and passenger demand for the rest of this year “looks fairly flat, but we’ll continue to grow our business because we have planes coming,” Clark said. “Full-service network legacy carriers will have to adjust their businesses for what will be a fierce segment.”
©2016 Bloomberg L.P.11
This article was written by Andrea Rothman from Bloomberg and was legally licensed through the NewsCred publisher network.